After joining the militia and tasked with scouting the west of the road, I encountered 2 bandits and killed them. But after going back to the Militia Captain, I still only have a response that everything is fine and am unable to end the mission. How do I progress?

I forgot what you had to do exactly, but I think you have to kill the Wolf leader on the corner of the map, opposite the river(I forgot what direction it was). It's near one of the corners, sorry I don't remember which.

If you roam around the map and just kill everything you find, you'll be able to pass this part. You have to kill almost anything anyway, because he asks you to scout the area out some more after this part.

Speak to the other guy there too, he sells some potions that might help.

Edit:

Oh, My bad, I forgot! There are 2 dead guys behind some bushes along the road. One has an arrow in him you dig out... you need that also! You'll find it has the letter "M" carved on it. Talk to the captain after you find that too.